By: Staff Writer
January 19, 2024
The Panama Canal continues to battle through its worse drought in history, forcing shippers to change routes.
It has also forced authorities to slash ship crossings by 36 per cent in the Panama Canal. The recent reduction is set to pose an even greater economic blow than previously expected as the Panama Canal is one of the world’s most important trade routes.
Conditions have also led shipping giant Maersk to inform clients this week that vessels with freight from Oceania (Australia and New Zealand) will no longer traverse the canal because of the ongoing low water levels. Maersk will be servicing the client’s containers by using a “land bridge.”
Instead of going through the Panama Canal, the vessels would call the Ports of Balboa, Panama, on the Pacific side — dropping off cargo heading for Latin America and North America and picking up cargo heading for Australia and New Zealand. The Port of Manzanillo, Panama, on the Atlantic side, will be used for dropping off cargo heading for Australia and New Zealand and picking up cargo heading for Latin and North America. Once at the port, containers would be loaded or unloaded and would then move via an existing rail over a distance of 80 kilometers across Panama to be picked up by another vessel. The change in service covers two transits per week, according to Maersk.
Panama Canal Administrator Ricaurte Vásquez now expects that lowering water levels would cost between $500m and $700n in 2024, up from $200m previously.
One of the most severe droughts to ever hit the Central American country has caused havoc on the 80-kilometre maritime channel.
It has generated a traffic jam of vessels. It has made the viability of canals doubtful for global transport, and raised fears about its impact on world commerce.
Other Latin American governments spy opportunity. In normal times the canal carries about 5 percent of global maritime trade. And it is lucrative, generating $2.5bn for the Panamanian treasury in the 2022-23 financial year, about 3 percent of GDP.
Politicians in several other countries with both Pacific and Atlantic coastlines are either building or mulling infrastructure projects that might lure traffic and revenue away from Panama. The most viable alternatives are by land, with containers unloaded from ships onto trains or lorries at one port and carried cross-country before being reloaded onto a ship on the other side.
Other competition against Panama is more of a dream. Colombia’s president, Gustavo Petro, wants to run a railway through the northern province of Chocó, connecting the Pacific port of Buenaventura to the Caribbean. The country’s National Infrastructure Agency is working on the scheme, but there is scant detail beyond a map with a line connecting both coasts, posted on the president’s X (formerly Twitter) account. On the Caribbean side it is unclear at which port the railway will end.
Several maritime alternatives to the Panama Canal have also been mooted. They are more speculative than land routes. Nicaragua wants to build its own canal, despite huge costs and complexity; an earlier attempt backed by a Hong Kong construction firm failed. The same warming climate that is making the Panama Canal less viable is also melting ice in the Canadian Arctic. So the Northwest Passage—a sea route skirting Canada’s Arctic coast—might become viable.